One of my top five books is Van Tharp's Definitive Guide to Position Sizing. 380 pages on the subject of Position Sizing. The purpose of position sizing is to meet your objectives, as he states on the first page of the preface.

Dr Tharp has an interesting section on the effect of streaks on the psychology of the trader. When a long streak occurs you tend to readjust the odds of your system in your head and risk appropriately. So, during a losing streak traders tend to assume that the system is no good or the market has changed, and risk less. And during a winning streak they think their system is the Holy Grail, and risk more.

The reality is, streaks occur randomly and the trader should recognise this.

The figures are actually startling if you havent seen them before.

Lets take the example of a system which wins 50% of the time, and lets look at the probability of various losing streaks.

It is virtually certain that you will get 5 losers in a row at some point. There is roughly a 10% chance that you will get 9 losers in a row and roughly a 1% chance that you will get 12 losers in a row.

Let now say you have a system which wins 70% of the time.

It is virtually certain that you will get 3 losers in a row at some point. There is roughly a 10% chance that you will get 5 or 6 losers in a row and roughly a 1% chance that you will get 7 or 8 losers in a row.

If you are suprised by the figures and not sure whether you have the right psychology to cope with the probabilities get Van Tharp's book!

I have had quite a few questions recently on how to chart performance of a stock versus its sector, in the Sharescope package. The way you do this has changed recently, so here it is:

Call up a stock chart and right click. Click on "additional graphs", then click on "add", then click on "price relative to sector index" - you get various options on colour and style of the line showing the relative performance of the stock versus its sector. This route puts the relative price line directly on to the price chart.

If you want to chart the relative performance of the stock against any other stock, or an index such as for instance the FTSE 250, again directly on to the price chart, the route is additional graphs - add - price relative to. At this stage you need to select the instrument with which you want to compare the stock's performance, so it helps to know the EPIC code or exact name for this, which you can of course look up ahead of time. For instance, to look at all the indices held on the Sharescope database click on change list, then click on indices.

Relative performance can also be set up as an indicator, in stead of being put directly on to the price chart, click on add indicator, then click on price relative to, then choose the instrument and the colour settings etc

A site user mcurtis512 has raised a practical issue to do with managing the formal stops placed in the spread betting firm's system. His specific issue is to do with stops during after hours markets, but this is really just the top of the iceberg. I have replied to his forum entry on this subject, to which there is no really easy answer, and I am hopeful that many others will have something useful to add to this thread.

For many spread bettors cost of carry charges are a little murky. We all probably know (or should know) that on a rolling daily bet cost of carry charges apply if we carry a bet over from one day to the next. When interest rates were a little higher it was actually possible to get a credit rather than a debit for cost of carry (if one was short a stock), but these days for most instruments cost of carry is just that, a cost to the spread bettor. The amount charged varies by firm.

One interesting question is when do these charges get applied? For someone holding a bet for a few days perhaps this doesnt matter, but for very short term traders it might do. Let us take the example of someone trading FX on an intraday basis. Their intention may well be to exit all bets by the end of the day, and start again the next day.  But how is end of day defined? FX is after all a 24 hour market.

In the FX markets one standard convention is to treat 5pm Eastern Time (USA) as the close - this equates to 10pm GMT. Another convention is to treat midnight GMT as the close (Sharescope uses this convention).

The practice amongst the spread betting firms varies. My understanding is for instance that at Capital Spreads the end of day is based on their own defined hours of business, and that in effect 9.15pm GMT is the cut off time for cost of carry purposes. On the other hand CMCMarkets uses 10pm GMT.

So if one had two FX bets, one with Capital Markets, the other with CMCMarkets, and closed both at 9.45pm, one would incur cost of carry charges with Capital Markets, but not with CMCMarkets.

As with many practical spread betting issues the important thing is to know the specific operational rules and conventions of the firm you are using.

I usually run about 6 or 7 training seminars on spread betting each year. Unusually I have two this month - one coming up this Friday (still a vacancy if anyone is interested - go to www.sparkdales.co.uk). The other one was last Saturday.

We had extensive discussions on the subject of exit methodologies, and one thing I have been very keen on particularly in the recent volatile conditions we have seen in the stockmarket is a break even stop.

The basic principle here is that after an instrument has moved in your favour by the same amount as your original risk (ie the distance between your entry and your initial stop) then you move your stop to break even. From that point on you have a "free" trade - all upside, and hopefully you are no longer exposed to a loss on the trade. I say hopefully because of course it is possible that price gaps past your stop and you dont exit exactly at your stop point.

As in most things in the world of trading there is always a downside to every upside, or so it would seem. The downside here is that after moving your stop to breakeven you then get stopped out, after which price moves back in the original direction of your trade, without you. That will happen sometimes, but for many traders, including me, that is a price worth paying for reducing the risk on a trade to zero, hopefully early on in the life of the trade.

I would be interested in any views or comments on this subject - I suggest if you have any, start a new thread in the forum.

Happy new year to everyone who uses the spreadbettingcentral site!

We have introduced a new forum facility on the www.spreadbettingcentral.co.uk site.

The public area within the forum can be accessed and contributed to by any user, once they have registered. This will hopefully enable users to exchange views on a wide range of spread betting issues.

Attendees of Malcolm Pryor's seminars on spread betting are also able to access a private area within the forum.

Thanks to those of you who commented that the site was down at various points over the weekend. I have had confirmation from the technical team that the problems have been resolved and everything is back to normal.

Many traders underestimate the importance of being out of the market.....at certain points in the year.

Being out of the market has several benefits

1) the time out is an opportunity to reflect
2) and an opportunity to rest, recharge the batteries
3) many traders find when they come back to the market after a break they have a fresh perspective, and in some cases more objectivity.

There are some excellent times to be out of the market
1) during vacations - dont make the mistake of trying to trade on holiday, the results will often be poor, and that can spoil the holiday as well as destroying one of the points of it
2) during major personal events, for instance moving house
3) during illness

Traders that trade all the year round come what may risk performance deterioration. For most people it is better to schedule a number of periods every year to be out of the market.

One of the biggest complaints by customers of spread betting firms is the requote.

The scenario for a requote unfolds as follows
1) there is a bid and ask for the instrument on the screen
2) for sake of argument let us say you click on the buy button
3) immediately a message comes back with a new price, almost always higher than the price quoted; if you are going to sell, the price comes back lower. So, in both cases, the price is worse for the customer.

What effectively this means is the quoted bid ask spread on the instrument is not the real bid ask spread in real life. It means a firm can say their spreads are good, whereas in real life the spreads you get in practice are not as good as the theoretical spread advertised.

Of course, we are not talking about a quote expiring. Obviously a quote can only hold for a limited period of time, it would be unreasonable to expect to get a quote and then wait 30 seconds before acting on it, and hope it was still valid. The practice customers are complaining about is where the initial quote is acted on immediately but the requote comes back none the less.

Increasingly a number of firms have cottoned on to the fact that customers hate requotes, and are beginning to market themselves as not requoting (within reasonable time limits).

Firms that do constantly requote (they know who they are, and the customers know who they are) are going to come under increasing pressure to stop the practice. Customers are now beginning to realise that they can switch their business to the firms that advertise themselves as not requoting. They can vote with their feet.

There are interesting parallels between poker and trading, and the skills required to be successful at poker are to some extent transferable to trading. A good poker player knows when to chuck in the hand; a good trader knows how to cut losses quickly. A good poker player compares the size of the pot to the amount required to stay in the hand; a good trader examines the reward to risk ratio. A good poker player understands the opponents' psychology; a good trader understands market psychology and sentiment. Successful poker players and successful traders have an edge and know what that edge is.

In fact, there are other games which also have skills which are to some extent transferable to trading, games of skill such as bridge, backgammon and Go.

There have been various estimates in the press recently on the percentage of financial bets placed on line. The joint MD of Dublin based spread betting firm Delta Index, Michael O'Shea, was quoted as suggesting 95% of Irish trading is on-line.

So, do you have contingency plans for if you lose your internet connection? What if you are right in the middle of an awkward trade which requires close monitoring? What if you were just about to change your stop? What if you were about to enter a great trade? Do you have a game plan for these situations? Do you have back up internet access via a mobile or PDA? Have you got your spread betting firm's phone number to hand? Do you just exit your trades and wait for a connection? Or are all of your entries and exits automated via your spread betting firm's order system?

Winning spread bettors tend to have thought through these situations, how they are going to handle them, so dont get caught out.

Some of the more obvious situations which need to be thought through in advance are: loss of internet connection, loss of phone line, personal crises, illness, extreme market conditions. I am sure you can think of others.

There are three things to look for when picking which of the many instruments to bet on: volatility, liquidity and spread:

• higher volatility instruments are generally preferred because on average they will move further quicker

• higher liquidity is preferred to enable slick exits from bets when required

• lower spreads are preferrable to reduce costs of entry and exit

What is considered long term or short term will vary according to the trading style of the spread bettor. Here is one, subjective, suggestion:

• Extremely short timescale - less than one day
• Short timescale - one to three days
• Medium timescale - a few days to a few weeks
• Long timescale - thirty days to 3 months
• Very long timescale - over three months

Always determine before you place your bet the point at which you will exit the bet if it goes against you.

There are many techniques for setting stops including:

• Average true range
• Support and resistance
• Moving averages
• Highest high or lowest low
• Money stops

If the bet moves against you never move the stop further away from the entry price.

If the bet moves in your favour then you can start moving the stop nearer the current price.

Different types of order are used in different situations

• Market order
• Limit order
• Stop order
• Guaranteed stop loss order
• Contingent order
• OCO (one cancels the other ) order
• Take profit stop
• Trailing stop
• Stop limit order